Cost Drivers

Cost Drivers

This module you are learning about cost drivers. You will be adding costs to your budget. You want to consider several types of expenses.

  • What materials and labor will be necessary to produce your product for sale?
  • What overhead costs will be necessary?

Based on your estimates, continue your table started in your Question 1 discussion. Add a section for direct materials’ costs, direct labor costs, and overhead costs. At this point, you are only considering costs directly required to produce your product or service. You are not considering indirect costs, such as office rent and advertising expenses. Make sure you describe how you are determining each amount. For instance, with labor, how many employees do you anticipate needing and what will you be paying each employee? For materials, what materials are necessary, how much of each material will be needed, and what will the cost be? Once you have completed this section of your budget, your table should reflect the sales dollars anticipated and the direct costs necessary to earn those sales. At this point in the budget process, you are now able to add the projected gross profit to your budget (sales – cost of goods sold). Include your table as an attachment to your initial discussion response.

 

 

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